Eamonn Butler

Inflation brings many evils, of course. As the Nobel economist F A Hayek explained, it is not just about rising prices. It has real effects too. It distorts economic activity, and it's a painful job to put things back to where they should be.

Economists often think of inflation as "money dropped from helicopters". They mean that, with everyone suddenly having more cash in their pockets, they will be prepared to spend more, and prices will rise. Only then do they discover that they're actually no better off.

Hayek was more subtle, explaining that money or credit never enters the economy evenly, it always goes in at some point. Since it is created by government, it's often government industries that enjoy the first boost.

Then it slowly spreads out to other industries, like honey being poured onto a table. End the flow of money and the mound of honey-money in the middle collapse… Read More

So ex-HBOS banker Sir James Crosby has quit his job at the UK's bank regulator, the Financial Services Authority. It happened just 30 minutes before Gordon Brown faced questions in Parliament.

The surprising thing is that Brown appointed him to the FSA in the first place. The Authority is now saying that it had been concerned about HBOS's risky investments since 2002. And then Brown makes its head poacher into one of the gamekeepers! Absolutely bizarre.

The Financial Services Authority is no good and should be closed down. A Brown invention, it was always clunky and lumbering. With over 2,000 staff, it had to make up lots of things for itself to do, so it came up with hundreds of checklists for financial firms, regardless of size and whether the tickboxes were all appropriate.

The cost of its enormous bureaucracy meant that banks had to get large to carry the army of compliance… Read More

So we've bailed out the banks, and now everyone else is forming an orderly queue for state aid – like the carmakers. They say that they need to be helped through the recession so that, when demand does pick up again, they will still have the factories and skilled workers to produce them.

Past bailouts did not create a thriving car industry Photo: Reuters

So Peter Mandelson, the Business Secretary, plans to give them a blank cheque on the Bank of England, in order that they can offer us all cheap loans to buy more of their cars.

It's ingenious, because it makes people think that the government is helping us customers – after all, we get cheap loans – rather than the carmakers. But it's a straight subsidy to the industry, none the less.

Apart from the fact that it was too much cheap credit that got us into… Read More

At a meeting on "progressive conservatism" (isn't that an oxymoron?) yesterday, David Cameron hinted that flat rates of tax are more "progressive" than – well, what economists call progressive tax rates.

Mark Laar gave Estonia the flat tax Photo: Peter Payne

Much of the world would agree. When I first went to Estonia, the place was dead. There was nothing to buy in the shops, no restaurants that actually wanted to serve you. Then, when the Russians cleared out, in came the dynamic, free-market Prime Minister Mart Laar, who swept away the country's high and complicated taxes in favour of one single, low rate.

And plenty of other countries have now done the same – the other Baltic states of Lithuania and Latvia, Russia itself, Serbia, Ukraine, Slovakia, Romania, Macedonia, Georgia, Kyrgyzstan. Even China has been thinking about it.

It seems that Gordon Brown is planning to resort to a Zimbabwe-style policy to get out of the economic difficulties that he himself has created. He's simply going to print more money. It will probably have the same effect – stagflation – maybe not on a Zimbabwean scale, but stagflation much like we had in the 1970s under Brown's predecessors Harold Wilson and James Callaghan.The idea is that if the Government prints more money and stuffs it into our pockets, we will all feel richer. So we will go out and spend. We might by clothes, or cars, or houses again. And that might just save some of those retailers and carmakers who are in such a bad way right now.But what happens when we do all go out and spend the new cash that's been dropped into our… Read More

Sir Alan Walters is best known to the public as Margaret Thatcher's economic guru who got into public arguments with her Chancellor, Nigel Lawson in the late 1980s. Lawson walked out, making Mrs Thatcher look even less like a team player, and before long Sir Geoffrey Howe had let too, and Mrs Thatcher's days were numbered.

Walters was an academic, not a politician, and used to speaking his mind. Lawson was shadowing the European Exchange Rate Mechanism, but Walters considered the ERM 'half baked', and said so in print. Mrs Thatcher refused to fire him, and although Lawson had a fair measure of respect for Walters, the thought of carrying on with him second-guessing the Treasury's every policy was too much for Lawson to bear.

But, as an academic, Walters had been able to give intellectual power to the Thatcher administration's iconoclastic policies during his first stint as her economic adviser, in… Read More

Europe's leaders were looking incredibly smug a few days ago. Gordon Brown, whose bail-out plan they had adopted, looked perhaps more smug than any.

The markets must have been astonished that EU leaders could get together and decide anything at all, which probably explains their brief rally. But it was short-lived, and markets seem to be heading south again. And as that happens, our great leaders have suddenly come over all camera-shy.

Though investors were initially relieved, they have begun to realise that the bail-out has its shortcomings. Firstly, the cash has to come from somewhere. And of course it will come from bigger government borrowing, wider government deficits, rises in taxation and cutbacks in public-sector procurement.

None of that is good for business. The recession that everyone was expecting has suddenly got worse. Secondly, because Europe and America aren't expanding so fast, the countries which produce the things they run on -… Read More

I really do apologise. Our government is an embarrassment. When the Queen signed the Crime and Security Act in December 2001 I'm sure that she believed, as we had all been told, that it was an essential measure to defeat terrorism after the shocking attacks of 9/11. We did not imagine that our government would use it as a hostile economic act against a friendly country.

Mind you, none of us expected the Terrorism Act 2000 to be used to detain Sally Cameron, 34, walking along a cycle path in Dundee, or to make an 11-year-old girl empty her pockets, or to arrest 82-year-old peace activist Walter Wolfgang for heckling the Home Secretary at the Labour Conference.

Now our terrorism laws have been used – or abused – to seize the assets of a country that is – or until then, was – one of our strongest friends. I was one of… Read More

I woke up today and thought that Tony Benn's dream had come true. We've nationalised the banks. Well, we taxpayers now have a majority stake in one, and controlling interests in a couple more.

Except that the Prime Minister assures me that we haven't. That this isn't old-style nationalisation. It's a temporary move to restore trust and confidence. Its interests will be run at arm's length. The taxpayer is buying in at the market low, and might even end up with a profit when the stock is re-sold in… well, however long it takes. The Chancellor concurs.

I am not so sure. The Nobel economist Milton Friedman used to remark that nothing was so permanent as a temporary government programme. The Government will find itself getting more and more drawn in to the operations of the banks. After all, it's public money they have to protect. And politicians are born interferers anyway… Read More

The propensity of politicians to throw themselves on any passing soundbite never ceases to amaze me.

It's the big bad bankers that are copping it now, of course, thanks to the government's Â£500bn bail-out package. Government money never comes without strings. So for Â£500bn, the politicians reckon that they have bought the right, with our money of course, to throw a few insults at the bankers who have caused them so much grief.Gordon Brown announces himself angry at the 'age of irresponsibility' in banking. Even though it was an age which he, as Chancellor, calmly presided over without stepping in to stop it. But when banks were making so much money and paying him so much tax, what would you expect? 'Irresponsible risk-taking,' he told us, 'has got to be punished'.

Right…but it takes two to tango. The bankers may well have been willing and greedy enough to lend us six times our salaries in order to buy house… Read More